Snuff and Cardboard Boxes

There are of course many different types of boxes, including of course cardboard boxes, jewel boxes and now we have ‘Light Boxes’.

De Beers announcement of its ‘Light Box’ venture into synthetic / cultured / laboratory grown diamond jewellery must be one of if not the most seminal decisions affecting the diamond industry for several decades.

The dust has settled a bit since the initial hullabaloo. Well, I think it may have settled, or perhaps people are still in a bit of state of shock; the announcement certainly did not do any good for the wash out of the Vegas show.

To repeat my old boring mantra, the attempts to kill off synthetics diamonds were doomed to failure, and this attempt to ‘control’ synthetics has only heightened the risks to natural.

There is nothing intrinsically wrong with synthetics, indeed that is one of the core problems as in many instances it produces a better product.

That De Beers decided to get into the market is not that surprising, but how it has chosen to do and the timing of the announcement is, in my opinion, quite astonishing.

So here they are trying to create their next ‘non’ monopoly by coming into the market at about a 90% discount to natural diamonds; remembering that monopolies are about control and low prices, not maximising prices.

The assumption is that no one else will be able to live with this pricing model.  

I doubt this, technology moves on so quickly and De Beers’ factory only comes on line in 2020.

At the moment, the consensus seems to be that synthetic production is about 5 million carats per annum, in reality it might be quite a bit more given that the product was stupidly driven underground by De Beers and others.

De Beers production is slated to be 500,000 carats per annum when it comes on stream, but presumably other production will have increased from the current level; indeed, De Beers move actually forces others to boost production quickly.

So this seems to be setting up a race to the bottom.

Where does this leave natural?

In the interregnum, I cannot believe that retailers will be rushing to stock up with natural diamonds, if anything, the only rational move during this period of uncertainty would be to minimise inventory.

All this happening at a time of serious liquidity concerns for the mid stream.

Where is the advertising spend going to be concentrated, by De Beers and others?

There has been a gross and prolonged underspend (inter alia by the custodian) on advertising natural diamonds, which must be one of the reasons why so many millenials have become disenchanted or more disinterested in natural.

All the advertising, hype and focus is going to be on the pretty synthetic stones, as various companies go for market share.

To me there is a most unpleasant possibility that 5 to 10 million carats of synthetics is going to completely screw up the natural market of some 140 million carats.

Why didn’t De Beers do a deal with the likes of a Swarovski, which would have put synthetics pricing and emotionally in the correct segment of the market, a premium but different product.

De Beers, a division in the much bigger mining company Anglo American, selling natural and synthetic only adds confusion and leads to the possibility that it will be synthetics thriving off the back of natural, not the other way around.

To the purchaser of natural diamonds, especially in engagement rings, the key value is emotional and I do not think that De Beers could have gone about undermining this more successfully. 

There is a real risk that Light Boxes will turn Jewel Boxes into Snuff Boxes and, maybe, ‘snuff’ into Cardboard Boxes.